Securities Law Blog

Former Marvell Technology Group Ltd. employee Stanley Ng was arrested at his home in Cupertino, California and charged with one count of conspiring to commit securities and wire fraud. Federal prosecutors accused Ng of participating in an insider trading scheme that funneled corporate secrets to hedge fund traders.

Charges against Ng stem from testimony given at the trial of Winifred Jiau, a consultant at the expert networking firm Primary Global Research. At the trial, a witness testified that Jiau befriended Sonny Nguyen, a former Nvidia Corp financial analyst, and Ng to obtain information she sold to hedge fund managers. Nguyen and Ng were reportedly invited to join an “investment club,” for which admission was conditional on leaking inside information to Ms. Jiau.

According to prosecutors, in summer 2008 Ms. Jiau emailed Ng when she sought information on Marvell’s quarterly earnings ahead of its public release. The two spoke via cell phone a few days later. About two minutes after the call, Ms. Jiau contacted a hedge fund manager to sell the insider information.

At the time of his employment, Ng was the designated “SEC reporting manager” for Marvell. As the reporting manager to the SEC, he was allowed to review earnings reports before their release, according to prosecutors.

Ng’s case is just one of many being brought in the recent nationwide crackdown on insider trading. In his initial court appearance in Manhattan, Ng did not enter a plea and was released on a $50,000 bond and ordered to surrender his passport. If convicted, Ng faces as long as five years in prison.

The SEC has charged Stifel, Nicolaus & Co. and former Senior Vice President David W. Noack for allegedly defrauding five Wisconsin school districts. According to the SEC’s complaint, the St.Louis-based brokerage firm and Noack created a proprietary program to help the school districts fund retiree benefits by investing in notes linked to the performance of synthetic collateralized debt obligations (CDOs).

The school districts established trusts that invested $200 million in three transactions from June to December 2006. The trust was made up of $37.3 million from the school districts and $162.7 million of borrowed money.

The SEC alleges that Stifel and Noack failed to disclose that the portfolio in the first transaction was performing poorly from the outset, credit rating agencies placed 10 percent of the portfolio on negative watch within 36 days of closing, and certain CDO providers expressed concerns about the risks of Stifel’s proprietary program and declined to participate in it.

According to the complaint, Stifel and Noack sold the school districts an unsuitable product based on their sophistication and experience to independently evaluate the risks of the investments. The firm reportedly exposed the school districts to a heightened risk of catastrophic loss as a result of the heavy use of leverage and the structure of the synthetic CDOs.

By 2010, the school districts learned that the second and third investments were a complete loss and that the lender had seized all of the trusts’ assets. As a result of the school’s inability to provide additional finds to the trusts, the school districts suffered a complete loss of their investment and credit rating downgrades. The SEC alleges that while the investments were a complete failure, they generated significant fees for Stifel and Noack.

While the investigation is ongoing, the SEC seeks permanent injunctions, disgorgement of ill-gotten gains with prejudgment interest, and financial penalties.

Immunosyn Corporation, a California-based biopharmaceutical company, three shareholder companies, and four senior executives have been charged by the SEC for misleading investors about the regulatory status of the company’s sole product, SF-1019. Reportedly from 2006 to 2010, Immunosyn’s controlling shareholder, Argyll Biotechnologies LLC, misleadingly stated in various public filings that it either planned to commence or had commenced the U.S. regulatory approval process for human clinical trials for the drug. Misstatements were also made regarding clinical drug trials being underway in both the U.S. and Europe.

The SEC’s complaint, filed in federal court in Chicago, stated that Immunosyn’s CFO Douglas McClain Jr., Argyll’s Chief Scientific Officer Douglas McClain Sr., and Argyll’s CEO James Miceli engaged in insider trading. The executives allegedly raised $20 million from their sale of Immunosyn shares while knowing that misrepresentations were being made about the regulatory status of SF-1019. The shares were sold through Argyll Equities and an offshore entity Padmore Holdings, Ltd.

The complaint seeks a final judgment permanently enjoining the defendants from future violations of the antifraud provisions of the federal securities law, ordering each defendant to disgorge all ill-gotten gains plus prejudgment interest and pay financial penalties, and barring McClain Jr., McClain Sr., and Miceli from serving as an officer or director of a public company.

Trustee Irving Picard has recovered $1 billion in his efforts to clawback investor money lost in the Bernard Madoff Ponzi scheme. A $1 billion settlement was reached with more than a dozen funds associated with hedge fund firm Tremont Group Holdings Inc. of Rye, New York. The affiliated parties include Oppenheimer Acquisition Corp, MassMutual Holding LLC and Massachusetts Mutual Life Insurance Co.

According to the complaint, the Tremont Group and related entities were aware, through warnings in both internal communications and publicly available information, that the Madoff operation could be a fraud and profited from it. Picard alleged that Tremont Group Holdings and affiliates “substantially aided, enabled and helped to sustain” the Madoff scheme, ultimately receiving more than $2.1 billion in avoidable transfers as well as up to $240 million in fees during their relationship with Madoff.

As part of the settlement deal, the Tremont defendants will pay Picard $1 billion in cash, which will be transferred to the “Customer Fund” for eventual distribution to defrauded investors. In exchange, Picard will allow customer claims of the Tremont funds in the amount of $2,186,177,715.88.

In a statement, Mr. Picard said he has raised more than $8.6 billion which is almost half of the $17.3 billion in principal lost by Madoff customers who filed claims.